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tv   Nightly Business Report  PBS  September 18, 2015 1:00am-1:31am PDT

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report," with tyler mathisen and sue herera. >> the committee judged it appropriate to wait for more evidence. >> and wait it did, the federal reserve says now is not the right time to raise interest rates. but with the economy strengthening, what held them ba back? >> confused response. stocks that rose, then fell, then rose, and fell again as the market tried to figure out what the fed decision means for the economy and your money. >> and tuning in, a little known company makes a big acquisition to become a real player in the fast-changing u.s. cable business. all that and more tonight on nightly business report for thursday, september 17th. good evening, everyone. and welcome i'm sue herera. >> and i'm tyler mathisen here
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in washington outside the federal reserve's headquarters, where today the fed decided to keep interest rates right where they are, near zero percent. the decision was anyone's guess, right up to its release at 2:00 p.m. eastern time. but this the end the central bank chair janet yellen said this was not the right time to raise rates which were last hiked in 2006. even as key parts of the economy not only recover but also strengthen. so the guessing game continues with attention now turning to the fed's meeting in october or december, or even into next year. we have more on the decision and what elt matly held the federal reserve back. >> reporter: one of the most highly anticipated federal reserve meetings in years ended with monetary policy makers deciding to keep interest rates at record lows due to concerns about a weak global economy, low inflation, and financial market
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jitters. >> in light of the developments that we have seen and the impacts on financial markets, we want to take a little bit more time to evaluate the likely impacts on the united states. >> reporter: the u.s. economy, especially the jobs market s solid, with the unemployment rate expected to drop below 5% next year. but the global slowdown, the fed now says, might impact domestic economic growth and inflation. china's economy has slowed. the price of oil has dropped again. and emerging markets are taking on more debt because of the strong dollar. >> we fully expect those further effects like the earlier moves in the dollar and in oil prices to be transitory. but there is a little bit of downward pressure on inflation. >> reporter: meanwhile, market analysts are worried, adding those global concerns to the fed's checklist for raising rates m add to market
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volatility. >> this opens pandora's box to a whole host of other questions. is there something else that we don't know about? >> the financial market conditions, and financial market conditions tightening of that's basically what theicallylighted as to why they held off. >> reporter: now it's onto the next fed meeting at the end of october. with the next do it dependent met now expanded to global development. with nicely business report i'm hampton pearson in washington. there was drama on the street as the market tried to interpret that decision by the federal reserve. stocks fell sharply after the release, then rose just as fast only to rise even further, and then drop. by the close the dow jones industrial average fell 65 points to 16,674. the nasdaq was four points higher. the s&p 500 lost five points. yields also fell following the decision as you can see from the chart of the ten-year treasury
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note. bob pass any was at the new york stock exchange for all of today's ups and downs. >> reporter: well, that was something. even though the fed did not raise rates, they did surprise. and for everybody who said oh, the fed isn't going to raise rates and everybody knows it, apparently everyone did not know it. now, the dow was up modestly going into the fed announcement. then it dropped a bit initially. and then it rallied more than 250 points in the following hour. then, i'm not done -- it went all the way back down almost 300 points in the last hour before settling just off the lows for the day. interest rate-sensitive regional bank stocks fared especially poorly, fifth third, zion bancorp, all of them down 3 to 4%. the dollar weakened. that would normally help commodity stocks and industrials like general electric, but not this time. what exactly did happen? there is a lot of conflicting trading opinions playing out. a likely explanation is that
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some bought heavily on the initial announcement that the fed would not raise rates but traders sitting on large profits over the last few days sold heavily into it. that makes some sense. there is also a whole school who have argued that the fed not raising rates would send a signal that the u.s. and global economies are still weak, hardly the sign of confidence some are looking for. for "nightly business report," i'm bob pass any at the new york stock exchange. brandy crossner joins us now for more analysis on the fed and the economy. he is a former fed governor, and now a professor of economics at the university of chicago's booth school of business. professor, good to have you with us. what is the fed waiting for? and is there a danger that in waiting for thing to get just perfect, they wait too long? >> so there is always going to be some reason not to act. there is always going to be some piece of data that's not perfect or some volatility somewhere.
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but i think they were concerned that they are not seeing enough signs yet that they are going to be on a path to reach their 2% inflation goal. inflation has been moving down both in the recent report and in the personal consumption expenditure index, which is the main index that they focus on. and so i think their concern that inflation ant quite coming back as they had expected, so they are going to be cautious. >> randy, what did we learn from the fed today in terms of what their really watching? it seems to me that they are watching china, oil, the drop in commodities, and the global market tur nile we've seen recently. perhaps much more closely than a lot of market participants thought they were. >> i think the market participants should have realized that these things may have an impact on the u.s. both in real economic growth as well as it may have been an impact on inflation. because in the dollar strengthens and other economies
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are weakened, and especially if their currencies are going down, that could put downward pressure on u.s. prices. and so there is, in the u.s.'s integrated into the world economy. the fed always looks at these issues. they have become more salient recently, particularly china. >> you know, randy, i think a lot of people that if the fed, had the fed raised interest rates today, it is would have been, quote, a voeft confidence for the economy, a sign that things in the fed's view were where it wanted them to be. should we view today's nonaction as a vote of less confidence in the health of u.s. economy? >> well, certainly, if they were sufficiently confident in the labor markets and sufficiently confident in the path for inflation, they would have acted. but the thieu multiple around the world have made them a little bit less certain about that. i don't think it should be taken as a vote of no confidence but obviously if they had been more
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confident they probably would have acted. >> so is an october rate hike in your book on the table? or do they wait for december or maybe into 2016? >> so, i think october is highly unlikely because they said they wanted to understand the impacts the what is happening in china. that's probably going to take a little bit more time to see. they also want to make sure that inflation is getting back to its 2% goal. there is not going to be a lot of data between now and october for them to really change their assessment. possibly by december. so i think december is on the table. but it also could be beyond that. >> even though it's an election year coming up? >> the fed is going to do what it thinks is the right thing to do. and they will move when they feel that they need to move. whether it is december or march i don't think is really -- well, september, december, or march is really going to matter. and in terms of the electoral cycle and the electoral cycle i
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don't think is going to have that much of an impact on their decision choice. >> professor, thank you very much. professor randy crossner with the university of chicago's booth school of business. sue? >> trks ty, what does today's decision mean for stocks and your investment. we haven an analyst. russ, welcome back nice to have you here. >> thanks for having me. >> what are the implications longer term for stocks. we saw the wild swings after the announcement today. what's your prediction? >> i don't think it's going to matter as much as we're all talking about. the interesting thing is you had incredibly large intraday swings. but ahead of that decision it was close to unchanged. if you look at futures contracts, they suggest the fed was not likely to go. the fed didn't go and at the end of the day the market was close to unchanged. we spend a lot of time hemming
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and huhhing. whether they rate the interest rates a quarter point in october, december, september, is not going to be the determinant of how the stocks do through the remainder of the year. >> how do you feel about u.s. economic growth and what it implies for stock valuations? is the economy healthy enough, growing fast enough to, one, justify stock prices where they are, and maybe even leave a little room for growth? >> stock prices are probably close to fair value. in the u.s. they are a bit high. they are cheaper outside the u.s. the problem in the u.s. is you have a very mixed picture. if you look at the labor market, very healthy right now with the exception of wages. we are creating jobs at the fastest pace since the late 1990s.19 and relative to where the federate fund was back then you could argue they should have gone today. i think what's keeping the fed on hold is other parts of the economy are looking for wobbly. we've seen a softening of manufacturing. a softening of industrial
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product. and of course once you look outside of the united states and you talk about the global economy rather than the domestic economy, that does look less inspiring. >> it sounds like that's a pretty good recipe for continuation of higher equity values. >> certainly if we remain in this environment where inflation is low but not too low, rates are low and stable, these have supported equity valuations and are going to continue to do so. that said, and i think you were getting at this a moment ago, if equities are going to move higher through the remainder of the year into 2016, it's unlikely to come from multiple expansion, higher valuations. it needs to come from earnings growth and that's more likely if we see a pick up in the u.s. economy and also the global economy. >> russ, what were you thinking today before this meeting? did you think they were going to raise rates? are you disappointsed? do you think they missed something? or do you think they are playing it basically the way they should
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be playing it. >> the baseline, they are not going to raise rates. you saw that in the futures market to some exent tent. they were likely to given how fast inflation rates have fallen. i do think there is a missed opportunity. the reason i say that, let's frame the question slightly differently, let's not talk about raising rates. let's talk about normalizing rates. as i mentioned we have got the best labor market in the u.s. since the late 1990s. back then the rate was at 5 or 6%. the question is in an environment in custom the u.s. economy is doing okay, the labor market is doing well, is the right policy rate zero? i would say probably not and i think that's why they missed an opportunity. >> russ, thank you for your perspective. we appreciate it. russ with block rock. ty. sue one part of the economy sensitive to interest rate moves is housing. how much would a rate hike have
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mattered to the housing market today. rates cut into afford lt, surprisingly buyers are less worried about that than other roadblocks to buying a home. >> reporter: even before today's fed decision consumers were not as worried about rising mortgage rates as you might think. >> 85% said they would carry on with their home purchase plans even if rates topped 5%. that's significant: it tells you the state of their minds is. >> reporter: in fact, home buyers are more concerned about qualifying for a mortgage and finding about the right home than they are about rising rates according to a survey by trulyia. it's important to remember that mortgage rates do not directly follow the federal funt funds rate. they are dictated by bonds that generally track the yield on the ten-year treasury. that said, when the fed raises its lending rate the cost of
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lending banks goes up and they could recoup that cost in the form of higher rates. that could hit some higher than others >> our core market is first time home buyers, first move up home buyers, and they are price sensitive. >> reporter: more foreign the builders and buyers is access to credit, which is easing slightly according to a new lender sentiment report from fannie mae. but make no mistake, credit is still tight. and even a small rate hike could knock an estimated 7% of mortgage applicants out of the running. not because they wouldn't be able to afford the monthly payments, but because they wouldn't meet the required debt to income ratio. >> it doesn't matter how low the interest rate, if you can't get a mortgage, you can't get a mortgage. >> reporter: what matters most is a strong economy. and rising rates would be a sign of that. today we learned that builders broke ground on fewer homes last month. the commerce department reports that housing starts fell 3% in august and construction activity slowed sharply in the northeast
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and the midwest. the decline, according to some, could be a sign that the housing recovery will continue but it will be bumpy. positive news on the labor market. the number of americans filing new applications for unemployment benefits fell last week. lowest level in eight weeks. initial claims for jobless benefits dropped 11,000 to a seasonally adjusted 264,000. claims have remained below 300,000 for 28 straight weeks. and coming up, the deal general motors made with the department of justice offer its handling of those deadly ignition switch defects.
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don't expect $100 oil any time soon. according to reuter's, opec says even if the oil market stabilizes prices are unlikely to return to that level until the year 2030 or 2040. the cartel reportedly says prices will grow by no more than $5 a barrel per year to reach $80 by 2020. today fell 20 cents. it was a costly day for general motors. as we first reported last night the automaker has disagreed to settle with the department of justice over the company's handling of defective ignition switches. it also agreed to potentially settle civil lawsuits. the total cost to the company will be more than $1.4 billion. in trading today, shares of gm rose slightly. phil lebeau now with more on the settlements and what they could mean for gm as it tries to move forward. >> reporter: with two costly agreements, general motors takes
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one big step towards wrapping up cases tied to defective ignition switches that led to the deaths of 124 people. first, gm and the department of justice reached a deferred prosecution agreement for failing to disclose a safety defect and committing wire fraud. that means gm won't face those charges in exchange for meeting several conditions, including pie paying a fine of $900 million. >> they didn't tell the truth in the best way that they should have to their regulator and to the public about a serious safety issue that risked life and limb for americans. >> reporter: one of those victim was 16-year-old amber rose. her mother called today horrifically painful personally because no past or present gm employees are facing individual criminal charges. but ceo mary barras says her company is not putting the ignition switch scandal behind them. >> we didn't do our job. and it's part of our apology to
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the victims, we promise to take responsibility for our actions. >> reporter: gm has also agreed to potentially settle more than 1800 civil lawsuits involving owners of defective cars. that will cost the company more than a half billion dollars. these settlements mean many but not all of the legal cases surrounding defective ignition switches have been resolved and general motors has moved a step closer of getting out of a cloud of scandal that has rocked the company for the last year and a half. phil lebeau, "nightly business report," chicago. american airlines resumed flights after computer problems briefly grounded some flights. the flights affected were at three airports, chicago's o'hare, dallas/fort worth, and miami. 300 flights were delayed and the ground stop lasted two hours. americans apologized for the inscreens and says the issue was
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not hacking related. verizon warns about future earnings. the company says earnings may plateau next year because of changing consumer habits. still, the ceo believes the company will outperform despite the competition. >> so, is there impact? is there innovation? yeah, i think that's the mark of a healthy industry. but we've been able to hold our own. and grow, and deliver profitability. >> shares fell 2% to $45.23. on to rite aid now, a down day for that drugstore chain. it missed on the bottom line. the sales did before cast. it also trimmed its guidance for the full year. shares slid 11% to $7.66. the generic drug make preego urged shareholders to reject milan's unsolicited take over of the firm saying they undervalued the company.
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milan ros slightly to $49.37 adobe reported better than expected results. the software firm's profit and rep revenue topped analysts helped by subscriptions to its creative cloud software suite. shared shares spiked initially before the close. the stock was off a fraction to $80.31. >> a $17 billion dollar in the cable industry. cablevision being bought by altif creating the fourth largest u.s. cable operator. that sent the stock up 13% to multiyear highs. the act si wigs is part of a long string of change overs in the industry underscoring the changes that are taking place. we have the reasons behind the deal and what may happen next. >> reporter: the u.s. cable market is in the midst of major
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consolidation. altif looking for greater exposure to the new york tristate area where it says customers are willing to pay for premium services. this after making its first move into the u.s. market with a $9 billion to acquire st. louis base's sudden link communications. and cablevision, facing competition was looking for an exit. >> they are the only cable operator in the united states that has a head to head fiber competitor in most of its footprint with verizon. that makes it tougher. and they know the business better than anybody and they are sellers. >> this deal, which makes altif the fourth largest cable operator in the u.s. is the latest in a string of deals. at&t recently completed its takeover of directv. the industry is consolidating as cord cutting becomes a real threat. declining pay tv numbers are pushing cable giants to focus more on offering high-speed
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broadband to their customers with bundles of services including broadband tv and phone. now the question the what deals could be done next, if comcast is looking to do another deal or if companies with international exposure such as liberty global or discovery communications come into play. with so much consolidation already there aren't that many targets left. >> i don't think cox is for sale. after that you are talking about small companies, media come, and then it gets smaller and smaller. cable one, half a million subscribers. if you want to get big it's got to be a lot of small acquisitions. >> it's sure to draw regulators scrutiny. if they sign off, the deal is expected to kploez in first half of next year. for "nightly business report," julia bore citizen in los angeles. coming up the fed may not have raised rates today. but it will at some point and you will want to get your mutual fund portfolio ready.
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an update now on a story we told you about tuesday. general electric announced today it will create as many as 1,000 jobs in europe to build an engine development center there. this on top of the 500 jobs it said it would move overseas earlier in the week as the company cited congress's failure to reauthorize the export/import bank which guarantees loans for u.s. companies that do business overseas. >> what will rising rates mean for your mutual funds? the fed didn't move today. but it will at some point. here to assess how it will impact fund investors is brian reed chief economist at the mutual fund industry's main trade group.
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brian, good to have you back. the fed didn't raise rates today. but it did say by 2018 it expects short-term interest rates, the federal fund rate that it controls to go from 0 to 3%. what does that mean if i'm a bond fund investor? how much damage am i going to suffer to the share value of my funds? >> the focus today has been on the short-term interest rate. what's important for bond fund investors is where long term interest rates go. the rule of thumb is for the typical bond thumb a 1% increase in the long term interest rate will reduce their overall return by 4%. >> it could be a ou4% cut. >> but we do not necessarily expect that just because short-term rates go up by 3 percentage points that long term rates will do the same, do we? >> typically when the fed begins to move interest rates short-term rates will move more than long term. they anticipate the fed move and
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begin to price that into a long term interest rate. >> if rates went up three percentage points you are saying that would be a 12% decline in my share price value? >> only fit occurred on onecc d. >> quickly. >> so if it's spread out over a long period of time, say several years, remember, you are getting all the interest all the time on that bon fund and that's catching you up to where the price movement has been. >> there is a lot that the bonds manager can do in that environment to blunt the impact of the rising rates, right. >> absolutely. >> rolling over bonds. >> rolling over bonds or bringing new bonds in that are at a higher interest rate. this begins to catch up. when a bond fund investor has a temporary loss it is only temporary unless there is a default because interest rates eventually raise and the higher interest catches you back up to where you were before. >> but very quickly, you do need to know what the duration is or the average maturity of your bond firework the longer, the
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generally you are at risk of rising rates, right? >> that's right. the longer duration. the typical bond fund has a four to four and a half year duration. you should look to see what your bond fund's average mature tutor or duration is. >> thank you very much. folks, that's nicely business report. for what a day, sue, in washington. tyler mathisen signing off from outside the feds. >> come home soon, i'm sue herera. have a great evening, everybody. we'll see you right back here tomorrow night.
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man: it's like holy mother of comfort food.ion. kastner: throw it down. it's noodle crack. patel: you have to be ready for the heart attack on a platter. crowell: okay, i'm the bacon guy. man: oh, i just did a jig every time i dipped into it. man #2: it just completely blew my mind. woman: it felt like i had a mouthful of raw vegetables and dry dough. sbrocco: oh, please. i want the dessert first! [ laughs ] i told him he had to wait.


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